WASHINGTON — The recent stretch of the White House and both chambers of Congress exclusively being in the corner of alleviating post-crisis rules is over.
The Democrats’ takeover of the House Tuesday will bring a sea change in the chamber’s rhetoric toward financial services issues. What has been a focus on easing rules, tax cuts and expanding access to credit will likely be replaced by more attention on the industry’s mistakes and efforts to protect consumers.
Even if Democrats will be hamstrung in their ability to tighten rules for financial institutions, the new House leadership will likely be able to block any further deregulatory initiatives, and intensify criticism in oversight hearings of both the big banks and federal agencies attempting to draft administrative reforms.
"Big picture, I think you'll have a lot more gridlock" with split control of Congress, predicted John McKechnie, a credit union consultant and former staffer at the Credit Union National Association and National Credit Union Administration.
And the result of that gridlock, added McKechnie, "probably means that credit unions will have to look more toward the regulatory sphere on key issues, because I don’t think legislation is going to pass easily in that gridlocked environment."
With the Democrats projected to pick up at least the 23 seats necessary to cement control of the lower chamber, Rep. Maxine Waters, D-Calif. — a vocal Trump administration critic — is the probable next chair of the House Financial Services Committee starting in January.
Her ability to pass legislation in areas where she has taken a policy interest — such as curbs on the big banks, consumer protection and affordable housing — will be stifled with the two parties once again dividing power in Washington. The Senate remained in GOP control Tuesday night. But some observers cautioned that Waters’ subpoena power and ability to apply pressure on the regulators should not be dismissed.
One area in which Democratic leaders on the panel could assert influence is the banking agencies’ pending efforts to modernize the Community Reinvestment Act, including a recent proposal from reelected U.S. Sen. Elizabeth Warren that would
“There will be significant oversight hearings of financial regulators’ activity, particularly changes to the Community Reinvestment Act,” said Aaron Klein, economic studies policy director at the Brookings Institution.
Leading up to the election, Waters made comments suggesting she will bring a tough approach to leadership of the committee. A recent survey by Promontory Interfinancial Network suggests bankers are worried. When asked to rank their concern about a Democratic takeover on a 1-5 scale (with 1 indicating the least concern), 41% responded with a 5 rating.
“I will be the first African American, the first woman to chair the powerful Financial Services Committee. Of course, the CEOs of the banks now are saying, ‘What can we do to stop Maxine Waters? Because if she gets in, she’s going to give us a bad time,’” Waters told a group of constituents last month.
Waters vowed to be a voice for homeowners and other consumers that were harmed during the financial crisis.
“I have not forgotten you foreclosed on our houses. I have not forgotten that you undermined our communities. I have not forgotten that you sold us those exotic products, had us sign on the line for junk and for mess that we could not afford,” she said. “And for doing that, I have people who are homeless who have never gotten back into a home. What am I going to do to you? What I’m going to do to you is fair. I’m going to do to you what you did to us.”
Still, other observers note that Waters is an experienced legislator and may show a willingness to work across the aisle to pass bills that have support in both parties. Yet it may not be Waters negotiating directly with GOP leadership.
“It would be very hard for Maxine Waters to do compromises directly with the administration, due to the type of relationship she has with the president,” said Brandon Barford, a policy analyst at Beacon Policy Advisors. He added that other Democrats on the House Financial Services Committee could take the lead on trying to advance bills, in order to find common ground with the Trump administration.
“The only way that would actually work in practice is if [Waters] just didn’t really comment on the issue and had someone else take the lead,” said Barford. “The more [Trump] weighs in on something she is involved in, the less likely she is going to make compromises.”
Other senior Democrats on the committee may also have a louder sounding board, such as Carolyn Maloney of New York, who is currently the ranking member of the capital markets subcommittee.
In addition to challenging the Trump administration’s deregulatory agenda in hearings with regulators, the Democratic-led panel will also be able to call in executives at firms embroiled in controversy, including Wells Fargo and Equifax, for hearings that could generate negative news coverage.
“Big banks would face a torrent of headline risk — from
Waters was one of the first members of Congress to call for Trump’s impeachment. The Financial Services Committee doesn’t necessarily have jurisdiction over the impeachment process, but she could use the gavel to probe firms like Deutsche Bank and Citigroup, that are associated with Trump and members of his family.
Geoff Bacino, a credit union consultant and former NCUA board member, suggested potential banking legislation could get slowed down as a Democratic-controlled House focuses on the Trump administration. "it’s going to leave little time to handle some of the other issues," he said, adding that it won't be helped by the possibility that some 2020 presidential candidates may launch their campaigns before the end of 2018.
While substantial financial reform in a Democrat-controlled House is unlikely, some speculate that Democrats may be able to strike some deals on targeted pieces of legislation to help smaller financial firms, with CUNA Chief Advocacy Officer Ryan Donovan suggesting capital reform and field of membership remain key issues no matter which party is in control.
"I think we’ve demonstrated an ability to break through [the gridlock]. I will concede that this Congress was a bit more inefficient in regards to its legislative productivity, but we’ve broken through with our regulatory relief legislation," he said. "We’ve got to find a way to get through the gridlock and the way we do that is by working with those who support credit unions despite their political party...In an environment where Democrats take the House, there could [also] be opportunities to advance charter reform and to have a broader discussion on data and privacy. "
Dan Berger, CEO of the National Association of Federally-Insured Credit Unions, pointed to Waters’ track record in listening to different constituencies and trying to find common ground.
“When it comes to Capitol Hill, she’s been a dealmaker and has really listened to credit union issues,” he said.
"She has made it very clear that she’s upset with the big banks and Wall Street banks and predatory lenders, from a mainstream financial institution standpoint," added Berger. "I think she’d be willing to look at those issues [such as] financial education, financial inclusion and field of membership."
Analysts also think that Democrats may be willing to come to the table on financial technology issues and changes to the current anti-money laundering regulations.
“I think Maxine Waters, if she’s chair, and [Sen. Mike Crapo, R-Idaho], if he remains chair of [the] Senate Banking [Committee], there’s a chance that they could get some agreement on some smaller issues that are related to financial technology. … Waters is very partisan but I think she’s also unfairly characterized,” said Barford.
“There seems to be a broadening realization that the BSA/AML system could use some improvement,” agreed Brian Knight, a senior fellow at George Mason University’s Mercatus Center. “Whether or not anything can get across the goal line is a separate question.”
And a Democratic-controlled House could also raise the prospects for Congress to pass legislation that would give access to financial services for marijuana businesses in states where the substance is legal.
“Cannabis banking is an issue that is a growing issue and one that I hope the next Congress addresses,” said Klein. “I don’t think it’s as partisan an issue as it’s made out to be. … I think it’s more geographic than it is partisan.”
